Hungary’s Communication Faux Pas Dashes Hopes for IMF Deal

The Hungarian government Wednesday added a fresh example to its growing list of communication problems when it dashed hopes of the financial markets that it would return to the negotiating table with the International Monetary Fund in the autumn.

On Tuesday, the Hungarian Economy Ministry said in a statement that “the negotiations will likely continue in the autumn and an agreement will be reached.” The Hungarian forint firmed considerably as investment banks welcomed the government’s major change in attitude toward the IMF that bailed the indebted country out in 2008.

But on Wednesday, the same ministry issued a statement explaining that the autumn talks, expected after Hungary’s local elections scheduled for Oct. 3, will only be part of regular consultations, and that Hungary won’t seek to strike a new deal with the IMF. The forint quickly lost its previous gains.

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The government’s inability to communicate clearly with financial markets has become a pattern, investment bank economists said.

“This continues a pattern of major misspeaks on the part of Hungarian officials,” said Brown Brothers Harriman.

“Yet another flip-flop from the Hungarian officials this morning,” said Citigroup economist Wike Groenenberg.

The problem became acute in June when a ruling party official likened Hungary’s debt situation to that of Greece, helping the euro on its way to a four-year low against the dollar. The government’s hesitation to backtrack on the comments eroded the country’s hard-earned credibility on financial markets. Wednesday’s statement seems to suggest the problem is now chronic.

Investors may recall Prime Minister Viktor Orban saying in Berlin in July that Hungary would talk to the European Union but not the IMF about budget deficit targets. His deputy Tibor Navracsics said in Budapest at the very same time that he was hoping that IMF’s and Hungary’s views would eventually converge.

Also in July, Hungary’s Economy Minister Gyorgy Matolcsy said that the country is seeking to secure a new €10 billion-€20 billion loan agreement as a “precautionary credit line.” Hungary’s talks with the IMF broke down later that month, and the country suddenly said it didn’t need that safety net any longer.

“Maybe the Hungarians could learn a thing or two from the Turks in terms of managing market expectations in terms of relations with the IMF,” said Timothy Ash, currency strategist at the Royal Bank of Scotland.

Also referring to the Turkish strategy, “you keep talking about a possible IMF deal, pretending that something is brewing, and that you will be ready to serve the dish when the need arises. And markets don’t sell off as much as they otherwise would, because what if the government will indeed adopt a credible fiscal plan?” Citi’s Groenenberg said.

The blunders by Hungary’s ruling Fidesz party, which won general elections in a landslide in April, might have been excused initially as the government made its first steps in running the country. Nearly five months and several flops later, that’s not much of an explanation.

Comments (5 of 9)

Essence;>>Freshly growing problems. Dashed hopes of Financial markets. IMF will strike. Flip-flop Citigroup problem chronic. Citigroup suffered huge losses. Profit; -$1.606 billion (2009) Hungary didn’t need that. Maybe learn managing expectations. (WMD)....like Citi....Let's see.
>>Even after securities and brokerage firm Bear Stearns ran into serious trouble in summer 2007, Citigroup decided the possibility of trouble with its CDO's was so tiny (less than 1/100 of 1%)
Citigroup paid out over $3 billion in fines and legal settlements for their role in financing Enron Corporation, which collapsed amid a financial scandal in 2001.
>>Citigroup paid $2.65 billion to settle a lawsuit concerning their role in selling stocks and bonds for WorldCom, which collapsed in 2002 in an accounting scandal.In 2005,
>>Citigroup paid $75 million to settle a lawsuit from investors in Global Crossing, which filed bankruptcy in 2002. Citigroup was accused of issuing exaggerated research reports and not disclosing conflicts of interest.
>>Theft from customer accounts.. A three-year investigation found that Citigroup from 1992 to 2003 used an improper computerized "sweep" feature to move positive balances from card accounts into the bank's general fund, without telling cardholders
>>On February 27, 2009, Citigroup announced that the United States government would take a 36% equity stake in the company.
GOOD JOB.....

12:10 am August 28, 2010

Anonymous wrote:

Articles and stories written about Hungary by alex s gabor at examiner.com have been censored....alex s gabor and his investment bankers are bullish on the Hungarian Forint and China companies with US listed stocks...

11:59 pm August 27, 2010

Anonymous wrote:

Articles and stories written by Alex S. Gabor at examiner.com in the united states are being censored...bulish on the forint...

9:09 am August 27, 2010

JAG wrote:

Some readers may not like what they see in articles like this, but this piece does in fact reflect the views of many people in Europe and elsewhere when it comes to Hungary. Nobody "orders" articles like this -- trust me, I used to be a journalist. Depressingly, some Hungarians always want to frame the debate in terms of "Hungary vs. the world." The point this article makes is that Hungary is part of a wider community of nations, and as such, it needs to take its responsibilities seriously. It's not about politics. It's about common sense. Credit to the journalist for being brave enough to point this out.

7:46 pm August 26, 2010

G. Feher wrote:

re. WSJ - I suspect Hungary is of little to no economic interest to Americans. I would not expect much in the way of articles. About Gyurcsany - He is, of course ,a multi millionare socialist so therefore automatically suspect. However I do not recall another politician accusing his party leaders of lying to the electorate in an open meeting. Apparently he stated that the party had done nothing but lie since the election that got him in. According to Hungarian reports he was quite emphatic about this. He may be a socialist but he seems to be an honest one. I would appreciate such honesty from my American politicians.

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